Xi’s Costly Obsession With Security
How a Quest for Control Threatens China’s Economic Growth
THERE is some truth in the saying that anything can happen in the Middle East, and probably will. Certainly, few people would have predicted a year ago that within a short time there would be an open struggle between Arab nationalism and Communism. Whatever were Mr. Khrushchev's reasons for pressing his fortunes with Mr. Kassem at the cost of such grave danger to his relations with Mr. Nasser, his decisions had an inherent logic based on economics rather than politics. For of the two traditional centers of power in the Arab world, Iraq and Egypt, the former may seem to the Soviets by far the more attractive in the long run. This article will contrast the problems of economic development in the two countries and suggest what the differences might mean both for strategic relationships within the area and for the larger power struggle in which the Middle East is not a pawn but a queen.
In agricultural land, Iraq is potentially rich and Egypt is desperately poor. Egypt with a population in excess of 23,000,000 persons has a cultivatable land area at present of only 6,500,000 acres; Iraq, with hardly more than one-fourth of Egypt's population, has over 7,000,000 arable acres. On the basis of agricultural population, then, the area of cultivatable land per head in Iraq is 20 times that in Egypt.[i] The main problem of Egypt from the agricultural angle is space; overcrowding on the land is in itself an obstacle to an increase in output. Iraq has space to spare.
The same contrast is evident if we look at the technical possibilities of increasing the agricultural land areas of the two countries. If Egypt is successful in finding the funds (well over a billion dollars) to complete the High Dam project, she might be able to add another 2 million acres to her agricultural land area. In contrast, an expenditure in Iraq of a somewhat smaller amount on dams and irrigation works might provide between 5 and 10 million acres of new cultivatable land as well as making existing land more productive by making more water available. If Egypt were to make full technical use of fertilizers and insecticides on her already intensively cultivated land, she might be able to increase output per acre in the next five years by 25 to 30 percent. If Iraq were to make greater use of fertilizers and modern farming methods on her vast areas of poorly cultivated land, she might double or perhaps triple output per acre. To summarize, Egypt must support today four times as many people as Iraq with slightly less agricultural land than Iraq, whereas with even less new investment in dams and irrigation works and with more intensive land use than is contemplated in Egypt, Iraq could have an increase in agricultural production of three to four times that which would be technically possible in Egypt.
Egypt's comparative position is even less favorable with regard to the availability of capital for investment in economic development. Her population is increasing at a rate in excess of 2.5 percent a year. Therefore, an annual increase of national income of at least that amount will be necessary to prevent a further decline in living standards, and an increase of at least 4 percent would be needed to provide even a modest rate of economic progress. In order to achieve such an increase in national income, Egypt within the next decade must complete the High Dam or some equivalent project for increasing cultivatable land area; double or preferably triple industrial production; extend and improve her highway, railway and communications systems; invest heavily in prospecting for petroleum and mineral resources; and broaden the base and improve the quality of her educational institutions. I have estimated that the new investment required in specified projects in these areas would be at least 100,000,000 Egyptian pounds annually for a period of at least 10 years. This would amount to about 11 percent of the country's current national income.[ii] (Officially the Egyptian pound is equivalent to the British pound, but sells on the European market at a 25 to 30 percent discount.)
On the average, Egypt's total savings per year have not been in excess of 10 percent of national income, and it is generally conceded that less than half of such savings are available for investment in high-priority projects such as those mentioned above.[iii] On top of this, Egypt is spending on the military an amount which is thought to be in excess of 75,000,000 pounds annually. At best Egypt can count on 15 to 20 millions each year in net revenue from the Suez Canal, and by resorting to authoritarian measures she might force another 40 to 50 millions of annual savings into new investment in strategic development projects. She still would be far short of her needs, even if military expenditures were all but eliminated. Her only solution, therefore, is to get capital from other countries or to resort to deficit financing and forced savings. If the latter course were followed, the result would be a curtailment of present consumption levels to achieve even a modest rate of economic development in the future. These hard facts have convinced most Egyptians, and particularly those in high places in the government, that it is practically and politically impossible to find an internal solution for the country's economic dilemma.
Iraq, in contrast, appears to have an assured flow of funds for investments in needed development projects. Prior to the 1958 Revolution, the oil revenues available for development purposes were close to 75,000,000 dinars per year (the Iraqi dinar is equivalent to the Egyptian pound at official rates of exchange). If oil production is expanded, this revenue will be increased. Thus Iraq has sufficient capital to build all the dams, irrigation works, industrial plants and educational institutions which will be required in the next decade or two. As a former Minister of Development once pointed out, there could be reason to be optimistic about Iraq's economic prospects:
The belief of Lord Salter that the living standard will be raised to twice its present status during the course of one generation is a belief of a conservative man. I personally am optimistic of quicker progress and a brilliant future for this dear country which we should coöperate to serve . . . [our] wealth is our fertile land and our abundant waters which can be regulated and exploited through the revenues of our oil riches, to raise the standard of life of every citizen.[iv]
If we compare the two countries in terms of their human resources and social and political systems, the contrast is almost as sharp. But here the advantage lies with Egypt.
In the first place, Egypt is ethnically and culturally more unified than Iraq. The Egyptian people have a racial and temperamental homogeneity which clearly distinguishes them from their neighbors. Among the masses there is little difference in build, features, psychological make-up or ways of thought.[v] In contrast, the Iraqi population is a dispersed and heterogeneous mixture of tribes and agricultural and urban dwellers with great diversity in race, religion, tradition and outlook. In most respects Iraqi society is far more primitive than the Egyptian. It is easier, therefore, to mobilize the support of the Egyptian people for a program of social, economic and political development.
Secondly, Egypt has had a successful social and political revolution; its ruling régime is honest and comparatively stable; and it has a sense of direction. The Revolution broke the grip of the landed aristocracy on political and economic life. To be sure, the Nasser régime rules the country by force, yet it appears to command the enthusiastic support of practically all elements of the population. Although Nasser's ambitions in foreign affairs are not designed to please the West, the fact remains that he is committed to internal economic improvement, industrial development and a greater measure of social welfare and education for the people. As Dr. John S. Badeau has pointed out:
. . . in the perspective of history the Egyptian revolution will be to the Middle East what the French Revolution was to Europe. It, too, had its self-seeking leaders, its power cliques, its political nationalism; but it let loose forces that finally changed the pattern of social life in most of Europe. That is what the Egyptian revolution has begun to do in the Middle East and that is why it strikes fire in some form in every country.[vi]
Iraq, too, has had its revolution, which swept out the previous rulers. It, too, broke the power of a reactionary landed aristocracy, and it has promised sweeping social reform. In comparison with the Nasser régime, however, Kassem's is shaky. It has as yet no clearly formulated program for economic development; there is doubt whether it has the support of all elements of the country; and it is dangerously close to outright domination by the Communists. In short, Kassem has yet to prove that he is capable of consolidating his leadership in this heterogeneous society.
Again, Egypt has a large and comparatively well-trained body of civil servants, whereas Iraq is handicapped by an acute short-age of high-talent manpower in the government. Though Iraq has sent some hundreds of persons abroad for training, Egypt's civil servants with foreign training can be counted in the thousands. Indeed, Egypt has a surplus of civil servants, and she has been able to send her government experts, schoolteachers, engineers and military officers on extended technical assistance missions to neighboring states. In 1958, for example, more than 3,000 teachers reportedly were sent from Egypt to other Arab countries. Of these 600 went to Iraq, 400 to Kuwait, 200 to Jordan, and between 20 and 50 each to Sudan, Yemen, Lebanon, Tunisia, Morocco, Bahrein, Oman and other Sheikdoms.[vii] Egypt is thus an exporter of trained manpower, whereas Iraq must import it from other areas.
In the fields of social welfare, public health, rural community development, and agricultural extension services, Egypt is also far ahead of Iraq. For example, Iraq has nothing to equal Egypt's Combined Social Services Units in rural areas. As yet, the newly developed oil wealth in Iraq has had very little observable effect upon the country's diseased and poverty-stricken people. The masses have had little chance to comprehend the better economic life which technically may be in store for them. In Egypt, social progress since the Revolution is quite evident.
Further, Egypt eclipses Iraq in the field of education. The Egyptian system of primary and secondary schools is more advanced in all major respects than that of Iraq. The illiteracy rate in Egypt has fallen to less than 75 percent, whereas it is still over 90 percent in Iraq.[viii] Egypt in a few years may achieve universal compulsory education for all children of school age, whereas it may take decades for Iraq to attain this goal. Egypt has four major universities with a combined enrollment of over 75,000 students. Nearly 10,000 of these are students from neighboring Arab countries. Until a year ago, higher education in Iraq consisted only of a system of colleges with about 6,000 students attached to the various ministries of government.[ix] Iraq has been taking measures to strengthen greatly her system of higher education, but admittedly she has a long way to go. Although Egyptian universities may be inferior by Western standards, they have some respectable faculties of engineering and science and a few good programs of study in the arts and in the social sciences. Egypt also has new institutes for public administration, vocational training and personnel management development. She has recently established a national science council and set up an atomic energy commission. Iraq has lacked the high-talent manpower to undertake any activity of this kind.
Finally, Iraq is still predominantly in the pre-industrial stage of development, whereas Egypt is quite definitely an industrializing country. Outside of the foreign-managed oil companies, Iraq has very few skilled workers, technicians or engineers. Her few new factories have had to be designed, built and initially operated by foreigners; she has only a handful of native industrial managers. Thus she is completely dependent upon foreign interests in undertaking any sizable industrial development.
By contrast, Egypt already has the high-level manpower for substantial industrialization. She has a small but impressive nucleus of industrial entrepreneurs and managers. In comparison with other Arab countries, she has a large number of scientists, engineers and technicians. She possesses some of the most modern textile factories in the world and operates them almost exclusively with Egyptian personnel. Among the so-called underdeveloped countries, moreover, Egypt is the only one which currently operates its own oil producing fields and petroleum refineries without expatriate top management. And Egyptians own, manage and operate sizable fertilizer plants, cigarette factories, metal fabrication companies, sugar refineries, chemical plants, railways, airlines and a basic iron and steel works. They also own, control and manage nearly all of the major banking and financial institutions in the country. Finally, they have taken over the management of the Suez Canal. I have been told that the present Egyptian company handles 25 percent more ship tonnage each month than the previous internationally owned and managed company, and that it does this with 28 percent fewer employees. It has more pilots than the old company ever had; it has stepped up considerably the program of canal improvement which the old company had scheduled; and its future plan for development apparently is much more ambitious than anything previously envisioned. There is little doubt that, under Egyptian management, the canal is more efficiently operated than it was prior to its seizure in 1956.
It is true, of course, that Egypt has a shortage of competent managers and also of scientists and engineers, and this shortage will be even more acute if the 200 new enterprises now planned are brought into operation. But Egypt probably has the capacity to develop the needed trained manpower if she utilizes outside consultant services, strengthens the technical education in her universities and establishes new institutions for high-level manager training. By contrast, Iraq simply does not have at present a sufficient base, either in her educational institutions or in her few indigenous industries, to train the skilled technicians and administrators needed for modern industrial development.
It would be difficult, indeed, to find two countries alike in traditions and near to each other physically which show a sharper contrast in problems of economic development. Iraq has vast material resources for development but lacks the trained manpower and the political and economic institutions to achieve it. Egypt has abundant human resources, the essential capacity to develop skilled manpower, and the necessary economic and political institutions, but lacks the minimum capital and the natural resources for sustained economic growth. Iraq has sufficient capital, in the form of oil revenues, not only to finance her own development projects but also perhaps those in some other countries. Egypt can develop high-level manpower not only for herself but perhaps for some of her neighbors as well. Since Egypt cannot hope to prosper by herself, she naturally would like to combine her valuable human resources with the material riches of other countries. The union with Syria may help a little; an arrangement with oil-rich Kuwait or Iraq could accomplish a great deal more. In any case, there is a logical economic rationale for Nasser's preoccupation with Arab nationalism. Iraq, of course, does not have the same economic motive for unity with Egypt. She needs trained manpower and technical assistance, but these she can get from other countries. On the other hand, there have always been and still are elements in Iraq who for other reasons are strong advocates of Arab unity but not on Nasser's terms.
Neither Egypt nor Iraq, however, has control over her own economic destiny. The economic and political development of both has been and will continue to be in the future strongly influenced by the interests and polices of foreign powers.
The recent emergence of the U.S.S.R. as a power in the Middle East has been both a blessing and a curse for Egypt as well as for Iraq. It has been welcomed as a force to counterbalance the political and economic influence of the Western powers, but at the same time it has posed serious threats to the independence of both countries.
Until late in 1958, Egypt appeared to have much to gain and little to lose by close coöperation with the Soviet Union. Russia's desire to acquire an influential foothold in the Middle East and Egypt's need for economic aid and political support were quite compatible. When the West refused to sell armaments to Egypt in 1955, the U.S.S.R. undertook to supply them. After the nationalization of the Suez Canal when the United States and Britain stopped economic aid, froze Egypt's foreign exchange and instituted an economic blockade, the Communist bloc worked out arrangements to purchase Egyptian cotton and to ship wheat, petroleum, machinery and medicines to Nasser's hard-pressed country. In 1958 Moscow made a loan (in the form of credits equivalent to about $175,000,000) for Egypt's industrial development. And later, when it was apparent that the West was not going to renew its old offer to finance the High Dam, the Russians stepped in with a promise of aid (estimated at the equivalent of about $100,000,000) to get the project started. The total credits extended by the U.S.S.R. to Egypt since 1955 are probably five times the total value of all American aid under Point Four since 1945. Thus, while the West was doing everything in its power to cripple the Egyptian economy and to bring Nasser to his knees, no request to the Soviet Union for aid was refused. The U.S.S.R. likewise came forth with military, economic and technical aid in Syria. Indeed, wthout Soviet aid in the critical period following Suez, Egypt's economy probably would have collapsed and the union with Syria would never have taken place.
The strategy of the Soviet Union during this period was reasonably clear. First, it backed the Arab nationalism of the U.A.R. particularly where it was in conflict with Western interests. It sided with Egypt on most issues pertaining to Israel; it supported the cause of the Algerian nationalists against the French; and it lent encouragement to Nasser's campaign to eliminate the Western influence in other African countries. Second, it did its best to force Egypt to break her economic ties with the West. The Communist bloc countries took large quantities of Egyptian cotton, and on occasions sold it at cut-rate prices in Europe, thus undermining Egypt's traditional export markets. The loans to Egypt for industrial development consisted almost entirely of credits for purchase of machinery, equipment, supplies and technical assistance in the U.S.S.R. or its designated satellites. Here the motive was to tie Egypt's industrial development to the bloc countries, and thus divert it from its traditional dependence upon American, British and French technology. Third, to supplement its economic and technical objectives, the U.S.S.R. provided free education in Russian universities for thousands of Egyptian and Syrian students. Finally, until recently the Russians offered no objection to the measures taken by the Nasser régime to suppress the local Communist Parties in both Egypt and Syria. In this way it sought to demonstrate that it would not interfere with the internal affairs of the U.A.R. In this period, the Russians had a dominating influence on the economy of Egypt. And as long as they appeared to support the cause of Arab nationalism, Nasser could afford to be quite happy about the arrangement.
Kassem's revolution in the summer of 1958 appeared at first to offer Egypt a golden opportunity to take Iraq into its fold. It was expected that some kind of union between the two countries might be achieved and that Egypt, with some assistance perhaps from the U.S.S.R., would replace Britain and the United States as the main supplier of high-level manpower and technical assistance for Iraq's government, schools and major development projects. Egypt was ready and willing to fill the vacuum. But instead the Communists moved to fill it and swept aside the advocates of closer union with the U.A.R. By February 1959 the cleavage of interest between the Kassem and Nasser régimes had burst into open verbal conflict, and basic differences between Moscow and Cairo had also come to the surface. Communism, along with so-called "Western Imperialism," was by then a deadly threat to Nasser's Arab nationalism and thus to Egypt's aspirations for economic and political development. And now Egypt has good reason to feel insecure about the continuation of the Russian economic aid upon which she has become so dependent. For in significant respects Iraq now provides a much better opportunity than Egypt for extension of Russian interests in the Middle East.
For relatively little cost the Soviet Union can flood Iraq with schoolteachers, engineers and industrial and governmental experts. It is in position to take over the job of educating the future generations of Iraqi engineers and administrators in Russian universities. It has an excellent chance to mold the presently underdeveloped and hence very pliable Iraqi educational system in the Communist pattern. All this it can do at little cost because Iraq has the funds needed from oil revenues to pay for dams, factories, irrigation systems, schools and university buildings. At any time, probably, the U.S.S.R. could make the ruling régime in Iraq its captive. Short of this, it may in practice exercise control over the expenditures of oil revenues for economic development which may be made by an ostensibly independent régime.
By comparison, the U.S.S.R. would seem to have little to gain from further investment in Egypt. First of all, the Nasser régime strongly resents any outside domination over its internal affairs, including that coming from Russia. The U.S.S.R. cannot hope to mold the development of the Egyptian economy by flooding the country with technical assistance, because Egypt does not need droves of foreign schoolteachers, technicians, educators and administrators, nor will she admit them. Egypt does need capital and equipment for very large projects, but if the Soviet Union hoped to maintain dominance over the Egyptian economy by filling that demand it would find it highly costly. In any case, the Soviet Union is still in position to keep Nasser on the string without offering any more aid; for by cancelling the credits already extended it could throw the country into an economic crisis. It could also embarrass him by giving either open or covert support to subversive Communist elements within Syria and Egypt. In short, now that it is in position to dominate developments in Iraq, Egypt is no longer as essential as it was formerly as a base for exercising influence on the Middle East.
The United States, Britain and France can no longer entertain even the hope that either Egypt or Iraq will align itself with the West. The Suez aggression in 1956, the subsequent failure of the Eisenhower Doctrine, the Kassem Revolution of 1958, and the final withdrawal of Iraq from the ill-fated Baghdad Pact are dramatic indications of the extent of the collapse of Western influence in both countries. Indeed, in comparison with recent Russian successes in the area, the failures of Western policy appear to be almost monumental. For practical purposes, the West is driven now to concentrate on measures designed to keep the U.A.R. and Iraq from falling under complete Soviet economic and political domination. The prospects of achieving even this limited objective are not very bright, but they are not hopeless.
Egypt now has the desire and perhaps also the prospect of freeing herself at least in part from the Soviet economic grip. In recent years she has been able to get some credits from West Germany, Japan and other countries for purchase of machinery and equipment. For example, the Germans participated in the development of the Egyptian Iron and Steel Company, and they recently agreed to help on other projects including the construction of a plant for the manufacture of trucks. Both Germany and Japan have been interested in selling their machinery and heavy equipment to Egypt, and both may be able to purchase fairly large quantities of Egyptian cotton in return. Hopefully, the U.A.R. may be able to expand its economic ties with these and other non-Bloc countries.
Another positive step was the settlement with Britain of financial claims growing out of the Suez affair, thus clearing the decks early in 1959 for resumption of normal trade and diplomatic relations between the two countries. Within the past several months, moreover, relations with the United States have shown marked improvement. By the spring of 1959, negotiations were in progress for a partial resumption of the foreign aid and technical assistance programs which were suspended after Egypt's seizure of the canal. At the same time, the United States sold the U.A.R. large quantities of wheat and other surplus agricultural commodities at bargain prices, payable in local currency. Finally, there appears to be some chance for a loan from the World Bank for major improvements in the Suez Canal.
These developments do not imply by any means that the West has become a supporter of Nasser's brand of Arab nationalism, but they do show a determination to help his régime keep out of the clutches of the Soviet bloc. In themselves, however, they fall far short of providing a Western solution for Egypt's fundamental economic problems.
In Iraq, the Western powers, and particularly the British, are hopeful that a complete take-over by the Communists may be prevented. Iraq is still economically oriented to the West, since her petroleum installations are managed by the British and her oil is sold almost entirely in Western markets. Thus far the Kassem government has shown no inclination to nationalize the existing installations or to throw the British out of the country. On the contrary, Kassem has been putting pressure on the Iraq Petroleum Company to increase production. Unless and until the Soviet Union is able to purchase and market Iraq's oil, the ruling régime is obviously anxious to remain on friendly terms with the countries which control the present oil markets. The British, moreover, are hoping to strengthen their economic and political ties with Iraq by selling it sizable amounts of armaments.
But the West cannot by these measures solve Iraq's basic problem of economic development. Somehow the country must acquire high-level manpower and extensive technical assistance if its material resources are to be utilized effectively in raising the living standards of the people. Here, presumably, she must take what the Soviets deliver in accordance with various trade and technical assistance agreements. No one can say whether it will be better than what the Egyptians were prepared to offer.
In conclusion, it is apparent that the problems of economic development of both Egypt and Iraq are inextricably involved in the continuing political struggle between the East and West. Although "positive neutrality" may be a handy slogan for the leaders in both countries, as well as at times a good instrument for playing one foreign power off against another, it really offers no panacea for the basic problems of economic development. By now both Egypt and Iraq must have learned that there is no such thing as "stringless aid." In the long run, the economic development of the Middle East will require some kind of union which will effectively combine the quite different but obviously complementary assets not only of Egypt and Iraq but of the other Arab states as well. If this union could come about, the future might hold more promise.
[i] Doreen Warriner, "Land Reform and Development in the Middle East," London: Royal Institute of International Affairs, 1957, p. 115.
[ii]Cf. Frederick Harbison and Ibrahim A. Ibrahim, "Human Resources for Egyptian Enterprise" (New York: McGraw-Hill, 1958).
[iii] In recent years, probably 50 percent of private savings has been invested in rural or urban real estate, hoarded in gold, or maintained in bank deposits which do not generate funds for industrial or commercial development.
[iv] Statement by Dhia'/Ja' Afar, Minister of Development Government of Iraq, Law No. 54 for the Year 1956 Amending the Law of the General Programme of the Projects of the Development Board and the Minister of Development No. 43 for the Year 1955, Baghdad, 1956, p. 5.
[v] See Charles Issawi, "Egypt at Mid-Century," London: Oxford, 1954, p. 4.
[vi] John S. Badeau, "The Middle East: Conflict in Priorities," Forsign Affairs, January 1958, p. 240.
[vii] Foster Hailey, "Arab Education Centers in Cairo," The New York Times, January 18, 1959, p. 28.
[viii] See "United Nations Yearbook, 1956," table 177, p. 574, for Egyptian illiteracy rate. New York: United Nations, 1957. For discussion of Iraqi illiteracy rate see Doris G. Adams, "Current Population Trends in Iraq," Middle East Journal, Spring 1956, p. 154-155.
[ix] For a discussion of this subject, see N. Hani, "Higher Education in Iraq," Middle Eastern Affairs, April 1956. The colleges are now being incorporated into a new university, now in the early stage of development. For a brief outline of initial plans of Baghdad University see Abdul Hamid Kadhim (Minister of Education), "Next Two Years Will Be Vital," Iraq Times Annual, 1957, p. 95.